The chips are down for online gambling firm | ICLG

A class-action claim has been filed in London against gambling company Entain following a catastrophic de…

A class-action claim has been filed in London against gambling company Entain following a catastrophic decline in its share price.

A group of investors in the London Stock Exchange-listed online gambling giant Entain have launched a class-action lawsuit, seeking redress for the deleterious impact on the company’s share price following a bribery investigation into its former Turkish operations. The claim, filed on Wednesday 21 August in the High Court in London under sections 90 and 90A of the Financial Services & Markets Act 2000, has been made on behalf of 20 institutional shareholders who are demanding more than GBP 150 million in compensation from the owner of UK betting stalwarts Ladbrokes and Coral.

DEFERRED PROSECUTION AGREEMENT

The investors allege that Entain failed to adequately inform them about an investigation by HM Revenue and Customs (HMRC) into allegations of bribery and corruption centred on the company’s Turkish subsidiary, Headlong. The eventual settlement of GBP 615 million – made up of a GBP 585 million fine, a GBP 20 million donation to charity and GBP 10 million in costs – together with a deferred prosecution agreement (DPA), was approved by Dame Victoria Sharp in December 2023 and stands as one of the largest fines in UK corporate history. Since May 2023, when Entain first warned shareholders about the impending penalty, the company’s share price has nearly halved, falling by 45% in the past year.

THE BACKGROUND

The origins of the dispute can be traced back to 2017, when Entain, then operating as GVC Holdings, exited the Turkish market by selling its operations under the Headlong brand to Ropso Malta. At the time, Ropso was Entain’s primary IT services provider in Turkey.

The transaction was initially valued at approximately USD 178 million, contingent upon Ropso meeting specific targets but, when Entain announced its intention to acquire Ladbrokes Coral, it opted to waive this amount. Then, in 2019 media reports surfaced alleging that some senior figures within Entain maintained financial connections with Ropso. These allegations were denied, but they nonetheless prompted the HMRC investigation, which expanded when investigators uncovered evidence that individuals within Entain and its associated companies might have been involved in bribery schemes, and that Headlong’s internal compliance procedures were so poor that some employees were committing fraud by simply siphoning off funds. Although Entain was staring a criminal prosecution under the UK Bribery Act squarely in the face, the Crown Prosecution Service, in consort with HMRC, ultimately decided against this course of action, instead choosing to levy a hefty fine and enter into a DPA.

Although it is a matter of fact that, since Entain’s Headlong-centred travails came to the fore, the company’s share price has plummeted, a court will need to assess the extent to which the Turkish investigation directly contributed to the stock market decline, or whether the decrease in the company’s share price was impacted – either fully or in part – by other issues the company has faced in recent years, including a series of unsuccessful acquisitions, such as its 2023 purchase of Poland’s STS Group. It is this poor financial performance – perhaps exacerbated by increasing pressure from activist investors and rumours of internal discord – that led to the December 2023 resignation of CEO Jeannette Nygaard-Anderson.

Andrew Hill, a partner at Fox Williams, who is representing the claimants alongside fellow partner Matthew Reach, said in a statement that the claim would “offer institutional investors the opportunity to recover substantial losses but, more importantly, serve to improve transparency and governance within the UK’s gambling sector, reminding public companies that they need to take their disclosure obligations seriously”.

Entain’s lawyers, Slaughter and May, did not immediately respond to a request for comment.